Politics Explained: Did Democrats Win the Fiscal Cliff?

To many in the political world, reelection gave President Barack Obama and the Democratic Party a mandate to increase taxes on the wealthiest Americans as part of any fiscal cliff deal. Indeed, many Republicans, including Speaker John Boehner (R-Ohio), recognized this political truth. However, House Republican intransigence has proven successful in the past. This is true despite Democratic control of the White House and the Senate—the political stage before and after the 2012 election. House Republicans threatened to go over the debt limit two summers ago if a debt ceiling increase was not met by spending cuts in a one to one ratio as well as no new revenue. This stance resulted in the 2011 Budget Control Act, which provided $2.4 billion in spending cuts (including the sequester) over a ten year period.

During the fiscal cliff crisis following the 2012 election, however, Democrats possessed significantly more leverage, as the expiration of the Bush tax cuts would automatically increase tax rates on all Americans. While Obama and Boehner attempted to reach the now-infamous “grand bargain” to reduce the deficit over the next ten years, no agreement was reached. Congress ultimately passed a bill that let the Bush tax rates expire for households making over $450,000 a year and individuals making over $400,000 a year, while permanently keeping the Bush tax rates for everyone else.

That Democrats got Republicans to vote for a tax increase for the first time in twenty years was notable, especially considering there were no attached spending cuts. However, many liberals felt that Obama underplayed his hand and, by taking the Bush tax cuts off the table, would again be forced into one-to-one spending cuts in order to avert the debt ceiling crisis to come in late February. Yet the House approved a bill to nullify the debt ceiling until May 18, after the predicted sequestration and budget battles coming in March and April. Since it appears that the GOP is no longer willing to use the debt ceiling as leverage in negotiations, did Obama and Democrats win the fiscal cliff battle?

Not quite. First, Obama has established a difficult precedent for the future of liberalism. He campaigned on the position that taxes ought to be raised only on the wealthiest Americans, while staying the same or lower for the middle class. While effective tax rates stop being progressive above the 80th percentile of American wage-earners and, therefore, show room for more progressiveness at the top of the income ladder, such a doctrine limits liberals’ abilities to expand the welfare state or universal health care in the future. By positioning the Democratic Party as a center-left alternative to conservative overreach, Democrats managed to win the 2012 election cycle, but at a notable cost to more progressive measures in the future.

Additionally, Republicans have a number of battles to fight with Democrats over the next few months. Several Democrats have expressed interest in equal amounts of tax hikes and spending cuts to control the deficit, but Republicans believe that the tax hikes already occurred with the fiscal cliff deal and that a new deal must not contain more revenues. On these battles, Republicans have more leverage than they did on the fiscal cliff, and it is likely that they will manage to procure some of the spending cuts they desire.

More importantly, Republicans, especially in the House, have begun to show signs of reasonable behavior to the American people. The House Republicans’ initiative on the debt ceiling suspension was a tactical decision made to restore their image among an electorate which blames House Republicans more than Obama for dysfunction in Washington.

As was the case with liberal Democrats in the 1980s and Goldwater Republicans in the 1960s, the current Republican Party is adjusting its message after devastating losses due to ideological overreach. Republican votes over the last month on the fiscal cliff deal, Hurricane Sandy relief, and the debt ceiling suspension are the first signs of this adjustment. So while Republicans did give in on tax increases, they made out well, given a situation in which they had little leverage and poor public perception – far better than the Democrats would have done if the circumstances were reversed.

To be clear, most conservatives are dissatisfied while most liberals are pleased with the events that have taken place on Capitol Hill over the past month. However, the fiscal cliff deal and the debt ceiling suspension, while being short-term setbacks for conservative goals, are creating an avenue for Republicans to shed their image as irrational and irresponsible. These deals have also limited liberals’ ability to seek more tax revenue. In sum, while Democrats may have won the fiscal cliff battle, the legislation of the past month has created a path–just a path–for Republicans to regain power in Washington.